Published 4:00 am, Tuesday, May 9, 2000

With juicy revelations emerging almost daily from the trial of Clint Reilly's antitrust case against The Chronicle sale, it's easy to forget that the battle in Judge Vaughn Walker's courtroom concerns the law rather than just politics and personalities.

A week ago Monday, the Examiner publisher admitted a willingness to "horse trade" editorial-page coverage for the mayor's support. On Tuesday, The Chronicle CEO joked about being "a perjurer." On Friday, a Hearst Corp. executive testified about receiving "intelligence" from The Chronicle's board of directors.

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It may sound like mudslinging, but the evidence introduced so far outlines Reilly's plans for showing that Hearst's purchase of The Chronicle -- and giveaway of the Examiner to the Fang family -- will create an illegal newspaper monopoly in the city.

How Walker will eventually rule is anyone's guess. The judge could do anything from dismiss Reilly's suit to permanently block Hearst from buying The Chronicle, at least as the deal is now structured. Whether Hearst would then get the opportunity to restructure the deal would depend on the basis for Walker's opinion.

Generally, Reilly contends the Examiner is a viable newspaper that Hearst is scheming to kill so the New York media conglomerate can own and operate The Chronicle unfettered by competition in San Francisco. He says the Fang deal -- which includes a $66 million subsidy from Hearst over three years -- is designed to ensure the Examiner's demise.

TO THE HEART OF THE CASE

Hearst, meanwhile, argues that the Examiner is a failing business whose absence cannot possibly harm media competition in the Bay Area, the relevant market for antitrust purposes. In any case, Hearst officials say, the Examiner's best shot at survival is the deal with the Fangs, publishers of the free, thrice-weekly Independent.

Examiner Publisher Tim White's testimony about his discussions with Mayor Willie Brown offended journalists and may have cost White his job, but Reilly's attorney, Joseph M. Alioto, said it goes straight to the heart of his client's case.

Walker apparently agrees.

When a Hearst attorney objected that White's testimony was irrelevant, Walker told him that it "does have a bearing on the issues in this case."

In Alioto's view, the testimony essentially shows that Hearst's purchase of The Chronicle was rigged. Alioto contends the U.S. Department of Justice approved the deal because of political pressure from Brown and other public figures lobbied by Hearst -- rather than because the deal made sense under antitrust law.

But White's testimony has other implications. Antitrust laws are designed to protect consumer choice as well as price competition. If consumers are left with one newspaper -- and that newspaper is willing to trade editorial coverage for political favors -- one argument would be that they have suffered clear harm by not having a second and perhaps more objective newspaper to read.

CREDIBILITY MARRED

The publisher's statements also undermine Hearst's credibility with the judge. Hearst officials claim that The Chronicle -- with a fourfold advantage in circulation -- subsidizes the failing Examiner under the two papers' joint operating agreement, which allows them to combine printing and other business operations while maintaining editorial independence. The papers also share profits equally under the JOA.

But Alioto says there is no hard evidence that The Chronicle subsidizes the Examiner, meaning the judge must essentially trust Hearst, which may be difficult if Hearst executives were trying to cut clandestine deals with the mayor.

Another piece of controversial testimony also casts doubt on the claim that the Examiner cannot survive without the JOA.

When Alioto insisted that Sias didn't know how much the Examiner would make operating alone, Sias said he didn't know how to answer, having "just been exposed as a perjurer."

Sias was joking, but as with White's testimony, the implication is potentially serious.

'TRUST US, JUDGE'

"Hearst's defense is, 'Trust us, judge, The Chronicle is subsidizing the Examiner,' " said attorney Jesse Markham, an antitrust expert in San Francisco. "That doesn't work very well when they (Hearst's and the Chronicle's witnesses) are having a tough time on the stand."

On Friday, another Hearst executive, chief legal officer James Asher, testified that Hearst received a tip that the company should make an early offer for The Chronicle before its owners could change their minds or other purchasers could get involved.

The testimony elicited by Alioto seems to support his argument that Hearst pre-empted the sale process, an allegedly anti-competitive act that prevented The Chronicle from being sold at a market price.

Alioto buttressed this testimony with his earlier cross-examination of a financial adviser to The Chronicle.

The adviser, Jill Greenthal, a managing director at the investment bank Donaldson Lufkin and Jenrette, testified that she had warned The Chronicle's owners early in the sale process that someone was leaking information to Hearst. She also confirmed that Hearst offered $565 million for the paper before any bids had been solicited.

COMPETITIVE BIDS IMPOSSIBLE

Finally, Greenthal confirmed that, although three of the nation's largest newspapers wanted to buy The Chronicle, none was willing to offer anything close to Hearst's winning $660-million bid. The reason, says Alioto, is that Hearst's first- right-of-refusal and other advantages under the JOA made competitive bids virtually impossible.

Stephen Barnett, a professor and antitrust expert at Boalt Hall School of Law at the University of California at Berkeley, says this evidence supports Reilly's effort to stop The Chronicle's sale.

"But the problem is," Barnett says, "that if you let everyone bid next time . . . Hearst is likely to be the high bidder, presenting all over again the question of what to do with the Examiner."

How persuasive all this testimony turns out to be is unclear, because Hearst and The Chronicle have not yet put on their defenses. Each company is expected to undermine Reilly's contention that The Chronicle can become a monopoly amid intense competition from daily and weekly newspapers, national newspapers, radio and television stations and Web sites in the Bay Area.